The world’s largest toy chain will release the second
version of its tabeo tablet early next month, Richard Barry, the
retailer’s chief marketing officer, said in an interview. The
first edition, built on Google Inc.’s Android operating system,
sold out last year, so the company has boosted production and
marketing for the tabeo e2, he said, while declining to give
specific sales figures.

Toys “R” Us, owned by Bain Capital LLC, KKR & Co. and
Vornado Realty Trust, is maintaining a presence in a kid-oriented tablet market that’s becoming increasingly crowded.
LeapFrog Enterprises Inc. and VTech Holdings Ltd. have upgraded
their devices with features such as Web browsing while Amazon
has focused marketing its Kindle Fire to parents. Samsung also
recently announced a child-centric version of its Galaxy Tab 3.

“There’s a new marketplace here with kids wanting a
specific device,” Barry said. “We believe we’re going to be at
the forefront of that trend.”

While sales of children’s tablets account for a small part
of the industry, which includes Apple Inc.’s top-selling iPad,
there may be plenty of room to expand the niche as families buy
more than one tablet, according to researcher IDC. Industrywide
U.S. tablet shipments are expected to increase 34 percent to 67
million units this year.

Sluggish Sales

Toys “R” Us, based in Wayne, New Jersey, is investing in
the tabeo amid sluggish toy sales in the U.S. Revenue at the
company has declined for seven straight quarters. A sales drop
during last year’s holiday-shopping season led to the
resignation of Chief Executive Officer Jerry Storch, who hasn’t
been replaced. The chain withdrew its plan for an initial public
offering in March.

One of the main culprits for the company’s struggles
happens to be the success of tablets. The devices have pulled
sales away from video-game consoles and hurt purchases of
traditional toys as kids as young as three spend more time on
them.

“It’s very important that we are selling products that are
relevant to kids,” Barry said. “We believe we are the toy and
kids authority. Whatever kids are buying, whether its physical
toys or digital content, we need to be a player.”

Digital Challenge

The chain’s predicament is similar to that of Barnes &
Noble Inc. The main products at both big-box specialty retailers
are being challenged by digital content and mobile devices.
Unlike Barnes & Noble, which only sells its Nook brand of
tablets, Toys “R” Us offers Kindles and a slew of other
devices alongside its tabeo.

That competition will only increase this holiday-shopping
season as Toys “R” Us adds more devices to its assortment and
upgrades the tablet departments in its stores. Shoppers will be
able to test about 30 different devices including the tabeo,
which will sell for $150. That doesn’t include LeapFrog and
VTech products, which are sold in their own branded areas. Last
year, a few tablets were displayed that ran static content and
couldn’t be tapped and prodded by customers, Barry said.

“We want to ensure we are the place for kids and family-oriented tablets,” Barry said.

The new tabeo will hold its own while competing against
similarly priced Android-based devices, Barry said. It has a
larger 8-inch screen -- compared to last year’s 7-inch -- a
faster processor, more parental controls and Bluetooth
capabilities for connecting to add-ons such as wireless
speakers. The devices also comes with applications, such as
Fruit Ninja, that would normally cost money.

Another reason Toys “R” Us is sticking with the tabeo is
the opportunity to sell content. Last year, it started a video-distribution service that allows users to download or stream
movies from the Web or through a mobile app. The devices’ app
store has also been curated to only show kid-specific choices.

Bain, KKR and Vornado bought the toy retailer in a deal
valued at $6.6 billion in 2005.